Real Declines From One-Month High as Brazil Seen Easing Support

Brazil’s currency weakened from a one-month high on speculation the central bank will ease support for the currency that has led emerging markets this year.

The real dropped 0.1 percent to 2.2144 per U.S. dollar at close of trade in Sao Paulo after advancing on May 9 to 2.2128, the strongest level since April 10. Swap rates on contracts maturing in January 2017 rose four basis points, or 0.04 percentage point, to 12.16 percent.

The sale of foreign-exchange swaps under a program to support the real and limit import price increases has helped it climb 6.5 percent this year, the most among 24 emerging-market currencies. The central bank refrained from calling an auction to extend the maturity on swaps on April 25, the day after the currency last closed at a level approaching 2.21 per dollar.

“The central bank gave an indication that it wasn’t comfortable with further strengthening the last time it reached these levels,” Pedro Tuesta, an economist at 4Cast Ltda., said in a telephone interview from Washington.

The real has climbed this year partly on speculation that President Dilma Rousseff will face a runoff in the October election after overseeing faltering growth.

Her support among voters slipped to 37 percent from 38 percent in April, a Datafolha survey published May 9 on Folha de Sao Paulo’s website indicated. The poll was taken May 7-8 and had a margin of error of plus or minus 2 percentage points.

To win in the first round, a candidate needs to have more than 50 percent support or attract more votes than the sum of those for every other candidate.

Inflation Outlook

Consumer prices will rise 6.39 percent this year, down from an estimate of 6.50 percent a week earlier, according to the median forecast of analysts in a central bank survey published today. They lifted their 2014 economic growth estimate to 1.69 percent from 1.63 percent.

Brazil sold today $198.3 million of foreign-exchange swaps under the program announced in December to support the currency. It also extended the maturity on contracts worth $246.5 million.

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